Program Title: Market Mechanisms and Incentives for Environmental
Management

Synopsis of Program:

The U.S. Environmental Protection Agency (EPA), as part of its
Science to Achieve Results (STAR) program, is seeking applications
for research leading to improved theoretical and/or empirical analyses
of the feasibility and effectiveness of market mechanisms and economic
incentives (MM&I) as substitutes for, or complements to, traditional
environmental management programs. The terms "market mechanisms"
and incentives" refer to approaches that rely on economic incentives,
market forces, or financial mechanisms to encourage regulated entities
to reduce emissions, discharges and waste generation, or generally
improve environmental performance. EPA is interested in supporting
research on practical applications of MM&I approaches related
to its mission, i.e., addressing environmental quality and human
health.

Eligibility Information:
Academic and not-for-profit institutions located in the U.S., and
state or local governments are eligible to apply for assistance
under this program.

Award Information:
Anticipated Type of Award: Grant
Estimated Number of Awards: Approximately four to eight
Anticipated Funding Amount: Approximately $1 million - $2 million
Potential Funding per Grant per Year: $50,000 to $200,000 per year
for 1 to 3 years, dependent upon topic addressed by application.
Limitations: Requests over $400,000 total, including both direct
and indirect cost, will not be considered.
Sorting Code(s):

The sorting code for applications submitted in response
to this solicitation is 2002-STAR-P1.

The Environmental Protection Agency (EPA) Office of Research and
Development, National Center for Environmental Research (NCER) announces
an extramural grants competition supporting research in the area
of market-based mechanisms and other incentives (MM&I) for environmental
quality management.

EPA has supported similar economic research in 2000 and 2001 through
earlier versions of the MM&I solicitation, and for several additional
years through the EPA/NSF joint program on Decision-making and Valuation
for Environmental Policy (DMVEP). This year, subject to available
funding, EPA also plans economic and decision science solicitations
addressing valuation of environmental impacts on human health and
the environment, and corporate environmental behavior and the influence
of government interventions. EPA plans a new solicitation
for January of 2003 to address the role and value of environmental
information on decisions at the firm, market, community, and government
levels. Announcements and awards related to these competitions
may be found on the Internet at: http://www.epa.gov/ncer/.

BACKGROUND: MARKET MECHANISMS AND
INCENTIVES

Environmental economists have suggested that MM&I approaches
could improve environmental performance or reduce compliance costs
when compared to traditional environmental regulation.
This has been validated by recent experience with waste water treatment
fee systems, and with sulfur dioxide and nitrogen oxides trades
in the United States; the former represent estimated savings of
about $2 billion per year, while the latter represent savings of
over $5 billion, compared to an approach that requires each facility
to meet a regulatory standard. The total present value of
potential savings from MM&I programs is estimated to be approximately
$40 billion (Anderson,
Robert. Economic Savings from Using Economic Incentives for Environmental
Pollution Control, Environmental Law Institute for EPA. 1999).

This competition encourages research that will contribute to the
development of practical, credible approaches for designing cost-effective
environmental programs that will meet the Nation's environmental
goals. The terms "market mechanisms" and incentives" refer
to approaches that are alternatives or complements to traditional
environmental regulation and that rely on economic incentives, market
forces, or financial mechanisms to encourage regulated entities
to reduce emissions, discharges and waste generation, or generally
improve environmental performance.

EPA is interested in supporting research that is related to its
mission, i.e., addressing environmental quality and human health.
EPA is not soliciting proposals that address market or incentive
approaches to natural resource management issues that are not within
the scope of the Agencys mission. Such issues would
include water supply, forestry or agriculture, except to the extent
that these affect or are affected by environmental quality, e.g.,
logging impacts on water quality, or impacts of air pollution on
agriculture.

The competition encourages proposals from researchers from all
behavioral, social, and economic sciences. It encourages collaborations
with non-social science disciplines when needed to answer social
science-based questions. It supports both research conducted
within a single disciplinary tradition, as well as novel, collaborative,
and interdisciplinary scientific efforts.

DESCRIPTION

The U.S. experience with MM&I applications is still limited.
The various potential applications of MM&I mechanisms, as well
as their efficiency advantages and disadvantages and their distributional
effects need to be better understood.
This competition is soliciting proposals for theoretically sound
empirical research that will accomplish one or more of the following
objectives:

1. Identify and evaluate the most effective applications
of MM&I for media-specific or cross-media environmental quality
issues that federal, state, and local agencies must address;

7. Evaluate the effects of MM&I program design for a specific
medium, including property rights distribution and transaction
costs, on efficiency and equity outcomes.

The results of this research are expected to inform policy-makers
in both executive and legislative capacities, as well as members of
regulated communities, the academic community, and public interest
groups, all of whom will be stakeholders and participants in the debate
on uses of MM&I.

Examples of research topics of interest include, but are not
limited to:

The application of trading systems for achieving water quality
standards, particularly total maximum daily loads (TMDLs), through
point-point, point-nonpoint, and nonpoint-nonpoint source trades;

The application of trading systems for achieving air quality
standards across all types of emission sources: mobile, stationary
and area, and between supply and demand alternatives (e.g., demand
side management in the electric power industry);

The type and magnitude of administrative and other transaction
costs, monitoring requirements, enforcement aspects, and paperwork
burden of taxes, subsidies, fees, and trading systems, and the
overall effect of these costs on efficiency for specific air,
land or water pollutants;

The transferability of actual experiences with existing MM&I
to novel situations, for example, generalizability of approaches
across media types or scales of operation; or,

Improved designs of trading systems for specific air or water
pollutants, including the relative efficiency and equity of different
property rights distribution systems among polluters and victims,
upstream and downstream product users, demand and supply management,
etc.

RELATED EPA INFORMATION SOURCES

Applicants are encouraged to avail themselves of information from
the following sources during preparation of proposals. The
MM&I research effort relates to several EPA programs, including:

The Innovation Strategy from the Office of Policy, Economic
and Innovation. The Innovation Strategys priority issues
are smog, greenhouse gases, water infrastructure, water quality,
and innovations in how we manage solid waste programs. The
Strategy will be available in the spring of 2002 at http://www.epa.gov/opei/innovation.htm.
Currently a draft of the strategy can be found at: http://www.epa.gov/innovation/strategy/index.htm

The Sustainable Environments Branch of the Sustainable Technologies
Division, of ORDs National Risk Management Research Laboratory,
which is researching the application of trading to storm water
quantity control an overview is provided at http://www.epa.gov/ORD/NRMRL/std/seb/#eet

Other federal, state and local environmental agencies also employ
variations of MM&I approaches. EPA welcomes research that
identifies the barriers that need to be overcome as well as the changes
that need to occur in order for these agencies to apply MM&I approaches.
FUNDING

EPA anticipates making approximately four to eight awards totaling
about $1 million to $2 million. The projected range is from
$50,000 to $200,000 per award per year, with durations from one
to three years. Field experiments, survey research, and multi-investigator
projects may justify the higher funding level. Awards made
through this competition will depend on the availability of funds.
Requests for amounts in excess of a total of $400,000, including
both direct and indirect costs, will not be considered.

ELIGIBILITY

Academic and not-for-profit institutions located in the U.S., and
state or local governments, are eligible under all existing authorizations.
Profit-making firms are not eligible to receive grants from EPA
under this program. Federal agencies and national laboratories
funded by federal agencies (Federally-funded Research and Development
Centers, FFRDCs) may not apply.

Federal employees are not eligible to serve in a principal leadership
role on a grant. FFRDC employees may cooperate or collaborate
with eligible applicants within the limits imposed by applicable
legislation and regulations. They may participate in planning,
conducting, and analyzing the research directed by the principal
investigator, but may not direct projects on behalf of the applicant
organization or principal investigator. The principal investigator's
institution may provide funds through its grant from EPA to a FFRDC
for research personnel, supplies, equipment, and other expenses
directly related to the research. However, salaries for permanent
FFRDC employees may not be provided through this mechanism.

Federal employees may not receive salaries or in other ways augment
their agency's appropriations through grants made by this program.
However, federal employees may interact with grantees so long as
their involvement is not essential to achieving the basic goals
of the grant. The principal investigators institution may
also enter into an agreement with a federal agency to purchase or
utilize unique supplies or services unavailable in the private sector.
Examples are purchase of satellite data, census data tapes, chemical
reference standards, analyses, or use of instrumentation or other
facilities not available elsewhere, etc. A written justification
for federal involvement must be included in the application, along
with an assurance from the federal agency involved which commits
it to supply the specified service.

Potential applicants who are uncertain of their eligibility should
contact Jack Puzak in NCER, phone (202) 564-6825, email: puzak.jack@epa.gov.

STANDARD
INSTRUCTIONS FOR SUBMITTING AN APPLICATION

A set of special instructions on how applicants should apply for
an NCER grant is found on the NCER web site, http://www.epa.gov/ncer/rfa/forms/index.html.
Standard Instructions for Submitting a STAR Application and the
necessary forms for an application also will be found on this web
site.

SORTING CODES

The need for sorting codes to be used in the application and for
mailing is described in the Standard Instructions for Submitting
a STAR Application. The sorting code for applications submitted
in response to this solicitation is: 2002-STAR-P1
The deadline for receipt of the application at NCER is no later
than 4:00 p.m. ET, August 15, 2002.

ADDITIONAL REQUIREMENTS: Data and Model
Availability

The application must include a plan to make available all data
(including primary and secondary data) from observations, analyses,
or model development under a grant awarded in this program in a
format and with documentation such that others in the scientific
community may readily use them. The data must be made available
to the project officer in a standard exchange format without restriction
and be accompanied by comprehensive meta-data documentation adequate
for specialists and non-specialists alike to be able to understand
how and where the data were obtained and to evaluate the quality
of the data. Applicants who develop databases containing proprietary
or restricted information should provide a strategy, not to exceed
two pages, to make the data widely available, while protecting privacy
or property rights. These pages are in addition to the 15
pages permitted for the project description.

CONTACT

Further information, if needed, may be obtained from the EPA official
indicated below. Email inquiries are preferred.